US retail sales jump in a sign of more confident consumers

WASHINGTON (AP) — Americans stepped up their spending at retailers in May, especially for autos, clothes and building materials, in a sign that strong job growth has begun to boost store sales.

Retail sales rose a seasonally adjusted 1.2 percent after a 0.2 percent gain in April, the Commerce Department said Thursday. Over the past 12 months, sales have risen a solid 2.7 percent.

The upswing in shopping reflects greater confidence in an economy still shaking off the ravages of a recession that officially ended six years ago. Employers have added more than 3 million jobs over the past year. Yet until last month, many workers appeared to be saving as much of their paychecks as they could.

Excluding the volatile categories of autos, gas, building materials and restaurants, so-called core retail sales — which factor into the government's official measure of economic growth — rose a solid 0.7 percent in May.

Some economists saw the increase as evidence of stronger economic growth during the current April-June quarter than earlier assumed. Paul Ashworth, chief U.S. economist at Capital Economics, responded to the report by suggesting that second-quarter growth could approach a healthy 3 percent annual rate.

Spending at auto dealers and building materials stores jumped 2 percent in May, evidence that consumers are making longer-term investments in their homes and cars.

The figures confirm the strength seen in separate reports on autos and housing. People bought cars and trucks last month at an annual pace of 17.8 million — the fastest monthly rate since 2005, according to industry analyst Autodata Corp.

And the number of new-home purchases has surged nearly 24 percent year-to-date, according to the government.

More Americans are also upgrading their clothing. Thursday's report showed that shopping at clothiers rose 1.5 percent last month.

Sales at gasoline stations increased 3.7 percent, largely reflecting the higher costs of gas since April. Prices at the pump rose by roughly 14 cents a gallon to $2.74 during Memorial Day weekend, according to AAA's Daily Fuel Gauge Report.

Spending growth at restaurants was subdued last month, inching up just 0.1 percent. But over the past year, restaurant and bar receipts have surged 8.2 percent.

Economists watch the retail sales report closely because it provides a limited but early indication each month of the willingness of Americans to spend. Overall consumer spending accounts for 70 percent of economic activity. Retail sales are about one-third of spending, with services such as haircuts and Internet access making up the remaining two-thirds.

Some economists interpreted the solid retail sales as showing that economic growth is improving enough for the Federal Reserve to raise historically low interest rates as early as September. The Fed has kept rates near zero since late 2008 to try to boost spending and borrowing by businesses and consumers who were clobbered by the recession.

Gregory Daco, head of U.S. macroeconomics at Oxford Economics, predicted that growth would average an annualized 3 percent in the second half of the year, enough for the Fed to start the process of lifting rates.

Job gains over the past year have helped drive down the unemployment rate to 5.5 percent from 6.3 percent in May 2014. Still, many Americans were hesitant to spend, probably because their incomes were barely rising above inflation. Average hourly earnings grew just 2.3 percent over the past 12 months, a pace that has recently accelerated but remains below the 3 percent level typical in a healthy job market.

Broader consumer spending — which includes services — was unchanged in April, the Commerce Department reported separately. On the whole, Americans chose to set aside a larger share of their paychecks. The savings rate reached 5.6 percent of after-tax incomes, the second highest level since December 2012.